What if non-custodial crypto is made "illegal" by mainstream governments?

[jossiel]

Let's think that every possibility is there. We've seen how far the governments can do like for the privacy coins getting chased by them.

How much more with these transactions, exchanges and even crypto. They can demand, declare and make policies that shall favor them.

Depending on the reasoning that they'll apply why they have to do it. So if it's the chances, don't remove that chances for them because they can make it happen if they have to.

Look at this situation happened last year on which privacy coins has been banned or attacked certain countries https://stateofsurveillance.org/articles/government/privacy-coins-regulatory-war

Many people didn't expect that certain situation like that will exist, but it happens.

So those situations you have said also have possibilities to happen, since government seems dislike the idea of privacy and they always want to have control.

That's one of how capable they are making things possible that relates to crypto policies and regulations that they can enforce.

From the privacy coins, to say that crypto can be used for money laundering, they can all figure it out and that's quite reasonable and convenient for them.

We haven't seen the full capacity that they can do because what we see right now is more with accepted regulations and not to banning.

[abaeze]

Governments have been opposing Bitcoin since its inception. When they saw that it could no longer be controlled, they started accepting it as reserve assets and countries around the world where it was strictly prohibited have slowly started relaxing restrictions on Bitcoin. That means that the government failed to control it and has started accepting it. Also, DeFi basically runs on blockchain, in which case on-chain transactions are used in most cases. If the government wants to completely stop non-custodial or on-chain activity, then not only Bitcoin but also the entire DeFi ecosystem will be affected. Because the main basis of DeFi is self-custody, smart contract, on-chain interaction which the government is unable or unable to control completely, and that is why many governments want to completely control or ban these things instead of controlling or banning non-custodial crypto which is not politically or technically possible.

[ultrloa]

Governments have been opposing Bitcoin since its inception. When they saw that it could no longer be controlled, they started accepting it as reserve assets and countries around the world where it was strictly prohibited have slowly started relaxing restrictions on Bitcoin. That means that the government failed to control it and has started accepting it. Also, DeFi basically runs on blockchain, in which case on-chain transactions are used in most cases. If the government wants to completely stop non-custodial or on-chain activity, then not only Bitcoin but also the entire DeFi ecosystem will be affected. Because the main basis of DeFi is self-custody, smart contract, on-chain interaction which the government is unable or unable to control completely, and that is why many governments want to completely control or ban these things instead of controlling or banning non-custodial crypto which is not politically or technically possible.

They are fighting and throwing bad shades against Bitcoin since start, but they didn't succeed because there still lots of people like its decentralization and other benefits it can potentially give to its users also holders.

Many countries also learn a lot from this that's why those countries which banned Bitcoin before are now trying to adapt then soften their restriction impose on Bitcoin also with other cryptocurrency assets. Also DeFi have similar principle  on Bitcoin although they have different purpose, but if government will take action like banning it can possibly cripple the whole ecosystem of DeFi. Although I believe this is going to happen, since same as before if people see some good relevance of this technology people will continue to support it and government cannot do anything. People support is more stronger than those corrupt officials.

[TofuRute]

Governments have been opposing Bitcoin since its inception. When they saw that it could no longer be controlled, they started accepting it as reserve assets and countries around the world where it was strictly prohibited have slowly started relaxing restrictions on Bitcoin. That means that the government failed to control it and has started accepting it. Also, DeFi basically runs on blockchain, in which case on-chain transactions are used in most cases. If the government wants to completely stop non-custodial or on-chain activity, then not only Bitcoin but also the entire DeFi ecosystem will be affected. Because the main basis of DeFi is self-custody, smart contract, on-chain interaction which the government is unable or unable to control completely, and that is why many governments want to completely control or ban these things instead of controlling or banning non-custodial crypto which is not politically or technically possible.

governments can make rules around exchanges and businesses, but its much harder to stop people from holding their own coins in non-custodial wallets. and you're absolutely right if they tried to band self custody completely, it would affect not just bitcoin but also the whole DeFi space. that is why regulation usually focuses on access points rather than the technology itself. so while governments can slow adoption, fully stopping non-custodial crypto is very difficult in practice.

[o48o]

Why would it need to be illegal if they can tax it? I am guessing that some authoritarian governments will make or keep it illegal, but that's not really the most effective road they could take.

-cut-
Anyway.  Your argument could fall short right away.  Bitcoin is legal already.  It is taxed already.  The 'non custodial' part of it is particularly the one they can call out on not being taxed particularly due to its uncontrollable nature.  A 'non custodial ban' would fix that and make all Bitcoin taxable while making any non taxable Bitcoin illegal as it is 'caused by people not wanting to be sincere and file their profits'.

What argument you are talking about?

Are you saying that they could just make illegal the main quality of bitcoin that makes it worth anything in the first place?

If they managed to do that, price of bitcoin would fall to the ground as the very core idea of it being resilient would be rendered pointless.

With this, they would lose all that tax income, and since ton of people would lose all their money that they have in crypto, it would immediately cause dent in the economy when people couldn't afford to spend as much.

To be fair, i have seen Trump's administration doing even dumber things, so anything is possible i guess.

[Abu-Naim]

Let's say governments decide to ban all non-custodial crypto transactions, in a bid to force everyone to rely on centralized exchanges and/or centralized wallet services. They would keep coins under their "control", although that won't stop someone from performing non-custodial crypto transactions "under the radar". Still, there would be the risk of getting caught and face fines and/or imprisonment.

Do you think governments will go to such lenghts in the future? If not, why? Your input would be greatly appreciated. Thanks.

Do you think this will be possible?
I don’t think so in my own point of view because the blockchain is public and no one can temper with the transactions, and despite the fact that you can see the transactions publicly, I don’t think the government can restrict the transactions or knows the citizens using the blockchain to do Bitcoin transactions.

Only centralized exchanges that requested for KYC can leak data out to the government, and as for non-custodial wallets, the governments have no right to control the transactions because they don’t where it is happening.
The centralization of Bitcoin is something that will never happen and that’s why the government is always against Bitcoin because they can’t control Bitcoin.

[Abiky]

Why would it need to be illegal if they can tax it? I am guessing that some authoritarian governments will make or keep it illegal, but that's not really the most effective road they could take.

Most first world governments are build from their people, and it's not their interest to go against their people if those people can vote them out of their jobs. And it's not only normal citizens that own cryptos. It's institutions and some law makers as well. So it would be hard to form a consensus where they would just all go against all cryptos. That just doesn't make any sense, and it would be near impossible to outlaw some open source protocols.

What they CAN do is tax the hell out of them, or ban some of them from cexes, and if there's no credible / provable money trail, they can just freeze CEX and bank accounts and money in them. Which they are already doing.

They can freeze CEX and bank accounts, but they can't do the same in non-custodial wallets or DEXes. Their only choice would be to prevent people from using such services. Or they can just hold developers accountable. Assuming developers have publicly-disclosed identities. Just like what happened with Tornado Cash mixer.

Long-term speaking, governments will only allow people to buy/sell/"hodl" crypto through centralized exchanges and/or custodial wallets. They will continue to collect taxes, but with tighter/stricter regulations. In developed countries, it's a "rough" path to take since people can vote politicians out of their positions. But in developing or socialist/communist countries? That's another story. We should expect the worse from such countries as they try to maintain power/control over their citizens. With CBDCs soon to be launched, even developing countries could be at risk. They might embrace authoritarianism if they see crypto adoption stifles Fiat dominance/growth. Just you wait and see.

[bitgolden]

There are many things that could turn illegal, we are not acting according to "what if", that would not be a smart way to invest. If you keep on making assumptions and decisions based on just "what ifs" then you are not going to be able to invest into anything, you are not going to get anything done.

I think it's clear that we are not going to see these type of changes suddenly neither, if anything like this to be ever happen, then we are going to hear about it way beforehand and not as it is happening.

[Ruttoshi]

If that happens, it means that the government have taken away our freedom and I don't think that such thing will happen in future because they will remove food from these decentralized platforms. Self custody is a right and not a crime.

Provided that you pay your crypto task and declare your assets if asked by the government, they wouldn't bother about how you store your crypto or which wallet and exchange that you are using.

[M47AK16]

Let's say governments decide to ban all non-custodial crypto transactions, in a bid to force everyone to rely on centralized exchanges and/or centralized wallet services. They would keep coins under their "control", although that won't stop someone from performing non-custodial crypto transactions "under the radar". Still, there would be the risk of getting caught and face fines and/or imprisonment.

Do you think governments will go to such lenghts in the future? If not, why? Your input would be greatly appreciated. Thanks.

Do you think this will be possible?
I don’t think so in my own point of view because the blockchain is public and no one can temper with the transactions, and despite the fact that you can see the transactions publicly, I don’t think the government can restrict the transactions or knows the citizens using the blockchain to do Bitcoin transactions.

Only centralized exchanges that requested for KYC can leak data out to the government, and as for non-custodial wallets, the governments have no right to control the transactions because they don’t where it is happening.
The centralization of Bitcoin is something that will never happen and that’s why the government is always against Bitcoin because they can’t control Bitcoin.

While it is true that governments can't know when you are using these wallets, they will know about it when you get in and get out. You think that if you send fiat to lets say binance, and then buy some coin there and then send that to your non-custodial wallet and then trade there and then get it back to binance and then take out fiat again, they are not tracking that?

I mean they probably do not track you or me because we are nobody but if there is any suspicious situation they would be following that because they know where that money comes from. Which is why certain accounts are getting flagged and getting their accounts frozen because you can't use crypto for money laundering or anything like that since government would be checking it.

[Felicity_Tide]

If that happens, it means that the government have taken away our freedom and I don't think that such thing will happen in future because they will remove food from these decentralized platforms. Self custody is a right and not a crime.

Provided that you pay your crypto task and declare your assets if asked by the government, they wouldn't bother about how you store your crypto or which wallet and exchange that you are using.

I don't think the government actually cares about the rights anyways... When they're willing to do anything, trust me, they do it without considering the implications. It's not even about collecting taxes, because I have been forced to ask why some countries like Pakistan, still exist within a gray area in terms of crypto usage, despite the revenue they can easily generate from taxes.

The thing is, Cex as a means of surveillance seem okay to them at the moment. It doesn't look like they're tasty for more more financial surveillance. But at the same time, we can not fully tell when this same government are going to snap.

[goldkingcoiner]

Let's say governments decide to ban all non-custodial crypto transactions, in a bid to force everyone to rely on centralized exchanges and/or centralized wallet services. They would keep coins under their "control", although that won't stop someone from performing non-custodial crypto transactions "under the radar". Still, there would be the risk of getting caught and face fines and/or imprisonment.

Do you think governments will go to such lenghts in the future? If not, why? Your input would be greatly appreciated. Thanks.

The government(s) could try. At best.

But it would be near to impossible to impose a ban on something which is completely out of their control. The entire world could become like North Korea and people would still keep real decentralized and non-custodial cryptocurrencies like Bitcoin up and running. I would like to think that such a dictatorship would only strengthen the people's desire for freedom, especially financial freedom. Even much more than now.

[KiaKia]

I say it's too late for that already, coming from a government? Will scare alot of people away, and the best time they should have done this was before Ledger and Trezor took over, Keystone and few good ones are out already, whatever they build now won't do much damage because there are proven better hardware wallets already, they are late.